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MIS - Chapter 03 - Strategic Information Systems for Competitive Advantage

MIS - Chapter 03 - Strategic Information Systems for Competitive Advantage

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89CHAPTER
3
Strategic Information Systemsfor Competitive Advantage
Rosenbluth International:Competing in the DigitalEconomy
3.1
Strategic Advantage andInformation Technology
3.2
Porter’s Competitive ForcesModel and Strategies
3.3
Porter’s Value Chain Model
3.4
Interorganizational StrategicInformation Systems
3.5
 A Framework for GlobalCompetition
3.6
Strategic InformationSystems: Examples and Analysis
3.7
Implementing and SustainingSISMinicases: (1) Cisco Systems/ (2) Aeronautica Civil
LEARNING OBJECTIVES
 After studying this chapter, you will be able to:
Describe strategic information systems (SISs)and explain their advantages.
Describe Porter’s competitive forces model andhow information technology helps companiesimprove their competitive positions.
Describe 12 strategies companies can use toachieve competitive advantage in their industry.
Describe Porter’s value chain model and its rela-tionship to information technology.
Describe how linking information systems acrossorganizations helps companies achieve competi-tive advantage.
Describe global competition and global businessdrivers.
Describe representative SISs and the advantagethey provide to organizations.
Discuss the challenges associated with sustainingcompetitive advantage.
1.Information Technology in the Digital Economy2.Information Technologies: Concepts andManagement3.Strategic Information Systems for Competitive Advantage
PART I
IT in the Organization
 
90
ROSENBLUTH INTERNATIONAL: COMPETINGIN THE DIGITAL ECONOMY
THE PROBLEM
Rosenbluth International (
rosenbluth.com
) is a major global player in the extremelycompetitive travel agent industry. Rosenbluth’s mission is “to be the qualityleader in the development and distribution of global travel services and infor-mation.The digital revolution has introduced various threats and businesspressures to Rosenbluth and other agencies in the industry:
1.
Airlines, hotels, and other service providers are attempting to displace travelagents by moving aggressively to electronic distribution systems (e.g., airlinesare issuing electronic tickets and groups of airlines are sponsoring sellingportals for direct sale of tickets and packages).
2.
Some travel service providers have reduced commissions caps and have cutthecommission percentage for travel agents from 10 percent to 8 and thento 5 percent.
3.
A number of new online companies such as
expedia.com
are providingdiversified travel services as well as bargain prices, mostly to attract individ-ualtravelers. These services are penetrating to the corporate travelarea,which has been the “bread and butter”of the travel agents’ business.
4.
The competition among the major players is rebate-based. The travel agen-cies basically give back to their customers part of the commission they getfrom travel service providers.
5.
Innovative business models that were introduced by e-commerce, such as auc-tions and reverse auctions, were embraced by the providers in the industry,adding to competitive pressures on travel agencies (see Turban et al., 2004).All of these business pressures threatened the welfare of Rosenbluth.
THE SOLUTION
The company responded with two strategies. First, it decided to get out of theleisure travel business, instead becoming a purely corporate travel agency. Second,it decided to rebate customers with the
entire
commission the agency receivesand instead bill customers by service provided. Rosenbluth charges fees, for ex-ample, for consultation on how to lower costs, for development of in-housetravel policies, for negotiating for their clients with travel providers, and for callsanswered by the company staff. To implement this second strategy, which com-pletely changed the company’s business model, it was necessary to use severalinnovative information systems.Rosenbluth uses a comprehensive Web-based business travel managementsolution that integrates Web-based travel planning technology, policy and pro-file management tools, proprietary travel management applications, andseamless front-line service/support. This browser-based service allows corpo-rate travelers to book reservations any time, anywhere—within corporatetravel policy—in minutes. Three of the customer-facing tools that comprise thissystem are:
 
ROSENBLUTH INTERNATIONAL: COMPETING IN THE DIGITAL ECONOMY
91
 DACODA (Discount Analysis Containing Optimal Decision Algorithms)
.
Thisis a patented yield-management system that enables travel managers todecipher complex airline pricing and identify the most favorable airline con-tracts. Use of this system optimizes a client corporation’s travel savings.
Global Distribution Network
.
This network electronically links the corporatelocations and enables instant access to any traveler’s itinerary, personal travelpreferences, or corporate travel policy.
iVISION 
.
This proprietary back-office application provides Rosenbluth’sclients with consolidated, global data to enable them to negotiate betterprices with airlines, hotels, car rental companies, and other travel providers.
THE RESULTS
Using its IT innovations, Rosenbluth grew from sales of $40 million in 1979 toover $5 billion in 2002. Today, the company has physical offices in 57 countriesand employs over 4,700 associates. The company not only survived the threatsof elimination but has become the third-largest travel management company inthe world and a leader in customer service, travel technology, and integratedinformation management.
Sources:
Compiled from Clemons and Hann (1999) and from information at
rosenbluth.com.
LESSONS LEARNED FROM THIS CASE
This opening case is a vivid example of a company that has achieved competi-tive advantage in the digital era by using IT. Rosenbluth’s experience illustratesthe following points:
It is sometimes necessary to completely change business models and strate-gies to succeed in the digital economy.
Web-based IT enables companies to gain competitive advantage and to sur-vive in the face of serious corporate threat.
Global competition is not just about price and quality; it is about service as well.
IT may require a large investment over a long period of time.
Extensive networked computing infrastructure is necessary to support alarge global system.
Web-based applications can be used to provide superb customer service.
It is necessary to patent innovative systems to assure competitive advantage.Otherwise, competitors will copy the systems, and the advantage willdisappear.The most important lesson learned from this case is the double-sided poten-tial of the Internet: It can become a threat to an entire industry, yet it can also be an extremely important tool for gaining strategic advantage for an innovativecompany. As a matter of fact, many executives who until 1998 were cynicalabout the strategic advantages of IT have completely reversed their attitudes.They are seeing the potential of Web-based systems to provide competitiveadvantage to organizations, and Web-based opportunities and risks are nowattracting universal attention in executive boardrooms.

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